The German markets watchdog BaFin has reprimanded Sky Deutschland, the pay-TV provider that is 49.9 per cent owned by News Corporation, for overstating the number of customers using its service as well as its profits and the value of the company.
BaFin released a statement on Monday night which said the pay-TV group's numbers for 2007 and half of 2008 were "flawed". It took issue with the reported levels of subscribers, inflated profits and the value of the company.
A spokesman for Sky Deutschland said BaFin's findings were "inapplicable" and the company is expected to appeal. He added that: "The findings of BaFin have no direct consequences on the balance sheet."
If the appeal is denied, Sky could face a fine and be subject to claims from shareholders, as well as having to correct its financial statements.
The reprimand comes after an 18-month investigation into the group, which dates back to before News Corp invested in the company, which was then called Premiere.
A source close to the broadcaster said: "The case relates to historic accounting methods under the previous management."
BaFin estimated that the financial reports had overestimated the company's subscribers to 623,000 in 2007, and 611,000 in its interim report for the first six months of 2008.
It added that the total compensation for rights to show Bundesliga football matches, which were worth €335m (£283m) and 16.4 million shares, had not been provided in the group's financial report for 2007. The regulators said the risks related to the acquisition of Bundesliga rights for the 2009-2010 and 2011-2012 seasons had not been factored in.
It added that over the same period the company had been valued too highly, by €248.4m in 2007 and €251.9m in the first half of the following year.
While BSkyB, which one insider describes as its "distant cousin", goes from strength to strength, Sky Deutschland has struggled since floating in 2005 and is set to make a loss this year.
News Corp first invested in Premiere in January 2008, and quickly took its 15 per cent stake to 25 per cent. The group said yesterday that it remains a committed shareholder.Reuse content